Section G is the portion of IRS Form 6765 that requires taxpayers to report their R&D credit claim at the business component level: which products or systems the research was for, what information each project sought to discover, and how qualified research expenses distribute across them. It was optional for tax year 2025 and becomes mandatory for tax years beginning in 2026, with reduced reporting for certain smaller filers.
Let’s break down why this shift is happening, what it means for your team, and how to plan your next move.
What does Section G ask for?
For each business component, Section G asks filers to identify the component and its type, describe the information sought to be discovered, and break down the qualified research expenses attributable to it, including wages by activity category. In plain terms: the IRS no longer accepts a single credit number with the support held in reserve. The structure of the claim goes on the form itself.
For software companies, the business components are typically the products, platforms, modules, or major systems under development. A component is not a team, a cost center, or a department. It is the thing being built.
Who has to complete section G?
Section G is mandatory for tax years beginning after December 31, 2025. Relief exists at the smaller end: qualified small businesses electing the payroll tax offset and taxpayers with smaller claims meet reduced reporting requirements. Most companies claiming meaningful software R&D credits should plan for full reporting. Requirements continue to be refined, so confirm the current instructions with your tax advisor before filing.
Why is Section G hard for software companies?
The difficulty is not the form. It is that Section G asks for a structure most companies never maintained. The typical R&D claim was assembled top-down: a narrative, estimated time percentages, one number. Section G demands bottom-up detail: which components, which activities, whose work, which dollars. Companies that organized evidence by business component all year can complete it as a reporting exercise. Companies that reconstruct annually face a genuine scramble, now with a filing deadline attached.
There is a second-order problem: wage allocation. Distributing QREs across components requires knowing how each person’s time split across them, and a year-end survey estimate sits uncomfortably on a signed government form. The allocation needs support, which means it needs to trace to recorded activity.
How should companies prepare?
Three moves, in order. First, define your business components now, at the level of actual products and systems, and keep the list current. Second, map engineering activity to components continuously rather than annually: the mapping exists naturally in repositories and ticketing systems, where work is already organized by what it builds. Third, derive wage allocations from that recorded activity instead of estimating them, so every number on the form can be walked back to its source.
CodeROI maintains exactly this structure from your code repositories: work organized by business component, activity mapped, allocations derived, continuously. Section G becomes a report, not a project.
Frequently Asked Questions
Is a business component the same as a project? Not necessarily. A component is a product, process, software, technique, formula, or invention. A project may map to one component, several, or part of one. The component, not the project plan, is the unit the IRS uses.
Does Section G apply to state credits? Section G is a federal form requirement. Many states have their own documentation standards, but a claim organized at the component level generally supports both.
What happens if the detail is thin? Incomplete or vague component reporting invites examination of the entire claim. Specificity on the form is the first line of audit defense.
Where can I confirm the current requirements? The Form 6765 instructions on IRS.gov are the authority. Requirements have evolved across recent filing seasons, so verify against the current year’s instructions with your advisor.
This article is for general informational purposes only and is not tax, legal, or financial advice. Consult a qualified professional about your specific situation before acting on anything here